Shanghai May Start Trading of Hang Seng Index linked ETFs

http://en.21cbh.com/HTML/2011-5-16/1OMjQ1XzIxMDE1OQ.html
16 May 2011

May 16, The Shanghai Stock Exchange is expected to list exchange traded funds (ETFs) tracking the Hang Seng Index or Hang Seng China Enterprises Index this year, the official Shanghai Securities News reported on Monday.

The announcement was made at a May 13 conference on the development of ETFs and other index products, jointly organized by the Hong Kong Exchanges and Clearing Limited (HKEx) and the Shanghai Stock Exchange (SSE).

Related parties have reached consensus over cross-border ETFs and the final plan will be issued as soon as the preparatory work is done, said Wang Lin, director-general, Department of Fund Supervision of the China Securities Regulatory Commission (CSRC).

Zhao Xiaoping, director of Product Development Deptartment under the SSE, said cross-market and cross-boarder ETFs are expected to start trading before the end of this years as a primary agreement was achieved, while the specific date will be decided by CSRC or the State Council.

Purchase and redemption mechanism is the challenge in developing cross-boarder ETFs, Zhao said, adding the first cross-boarder ETF listed in SSE would adopt the T+2 settlement mode, the same as how the ETF is traded in Hong Kong.

The abbreviation T+2 refers to the settlement date of security transactions and denotes that the settlement occurs on a transaction date plus two days.

The T+2 settlement mechanism was chosen in view of the priority of risk control, Zhao said.

People present at the meeting generally agreed that the first batch of cross-boarder ETFs will list in domestic bourses by the way of local fund companies tracking overseas stock or commodity indexes as Qualified Domestic Institutional Investors (QDII).

As for the QDII quota, Zhao said the State Administration of Foreign Exchange has promised the pricing of cross-boarder ETF will not be affected by the quota of QDII and the quota will be raised if the trading of cross-boarder ETF is proven to be active.

Hong Kong would be the first station to explore cross-boarder ETF trading, participants said.

The Hong Kong market has became the primary destination of QDII funds. By the end of 2010, QDII funds held RMB 35.5 billion of stocks listed on the Hong Kong Stock Exchange, accounting for 65% of their total investment in stocks, said Wang.

The Hong Kong market has similar trading hours compared with mainland bourses, feasibility of policy coordination, convenience in cooperation and supervision; besides, the Hang Sang Index is simple and efficient. Therefore, the first domestic ETF tracking the HIS is expected to be launched soon, an unnamed official at a fund company told the paper.

According to the HKEx data, currently there are 76 ETFs listed on the local bourse, accounting for 3.5% of total market turnover. In the first quarter of 2011, the market turnover of ETFs totaled HK$160 billion. For the whole year of 2010, the market turnover of ETF trading hit HK$600 billion.

The Shanghai stock market had 15 ETFs listed as of April 2011. The current market turnover from ETF trading is RMB 700 billion. The SSE has estimated that it could have nearly 100 ETFs listed by 2013.

edited by Tony ZHU

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